California is considering increasing its taxes by $12,250 per household. This would double the taxes currently being paid by taxpayers whose income source is in California. The proposal to increase taxes is made to fund a single-payer healthcare system and healthcare cost control system.  


In California, both residents and non-residents are required to pay taxes if they are receiving income from a source in California. The income tax rate in California is between 1% to 12.3%, and the sales tax is 7.25% (which may be more in certain areas due to the addition of district taxes). Since taxes differ according to jurisdiction in California, taxpayers may know the current sales and use tax rates in their area using this resource by the California Department of Tax and Fee Administration: California City & County Sales & Use Tax Rates (effective January 1, 2022). 


How the Changes Impact Taxpayers 


A new proposal for making a constitutional amendment in the tax law has been brought in order to fund health care coverage and cost control. This will double California’s taxes, which are already high as compared to other states. If the proposal becomes law, the top marginal tax rate on income from wages would spike up to 18.05%. Additionally, there will be a new 2.3% gross receipts tax (GRT). 


The proposal says that the amendment “would impose an excise tax, payroll taxes, and a State Personal Income CalCare Tax at specified rates to fund comprehensive universal single-payer health care coverage and a health care cost control system for the benefit of every resident of the state, as well as reserves deemed necessary to ensure payment, to be established in statute.” The Legislature could increase any or all of these tax rates bywith a statute passed by a majority vote of both houses of the Legislature if the funds are found to be insufficient. 


The Proposed Changes in Tax Law 


The following new state taxes will be imposed on taxpayers under the amended law: 


  1. 1. Annual excise tax will be imposed upon a qualified business for doing business in California at a rate of 2.3% of the gross receipts minus the first 2 million dollars in annual gross receipts.


  1. 2. Payroll tax will be charged from every employer who pays wages or other compensation to 50 or more resident employees for services performed either within or outside the state. The payroll taxes will be charged at 1.25% of total wages or other compensation paid by an employer to resident employees.


  1. Another payroll tax will be charged from employers who pay wages or other compensation to resident employees for services performed within or outside the state. This tax will be charged at 1% of total wages or other compensation paid by the employer to resident employees in excess of $49,900 per resident employee.


  1. 3. In addition, every resident of California whose income is subject to tax will need to pay State Personal Income CalCare Tax at these rates:


For taxable income:  The marginal tax is: 
$149,509 but not over $299,508  0.5% of the taxable income 
$299,509 but not over $599,012  1% of the taxable income 
$599,013 but not over $1,299,499  1.5% of the taxable income 
$1,299,500 but not over $2,484,120  1.75% of the taxable income 
$2,484,121 and above  2.5% of the taxable income 


The income tax and marginal tax will be charged on the amount of taxable income computed for the taxable year for the entire year even if the taxpayer was not in the state for the entire year. Any carryover items, deferred income, suspended losses, or suspended deductions will be also calculated similarly. 


Does It Affect Me? 


Any person who is a resident or a part-year resident of California is required to pay state taxes in the state if his/her income is above a certain threshold. Additionally, even non-residents who receive income from a source in California are required to pay state taxes in California.  


Depending upon whether you are a resident, part-year resident, or a non-resident, taxes are charged differently. Currently, for a resident of California, income from all sources inside and outside the state are taxed. For part-year residents, income while being a resident of California, and any income received from a California source is taxed. For non-resident individuals, income from source(s)s in California are taxed. 


With an already high tax rate, the proposed changes in state tax will significantly increase the tax burden of taxpayers who live in California and even those who do not live in the state, but receive income from a California source. Experts speculate that it can adversely impact the workforce and businesses of the state. 



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